WEYERHAEUSER CO 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) NOTE ABOUT FORWARD-LOOKING STATEMENTS This report contains statements concerning our future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, without limitation, statements relating to: our expected future financial and operating performance; our plans, strategies, intentions and expectations; estimated taxes and tax provision; our capital structure and the sufficiency of our liquidity position to meet future cash requirements; future debt maturities, compliance with our debt agreements and the effect on our financial position of the expected discontinuation of LIBOR; expected results of litigation and other legal proceedings and contingent liabilities, and the sufficiency of litigation and other contingent liability reserves and related accruals; expected uses of cash, including future dividends and expected capital expenditures; expected effects of certain acquisitions and divestitures on our operations and financial results; expected economic conditions, including markets, pricing and demand for our products; laws and regulations relevant to our businesses; assumptions used in valuing incentive compensation and related expense; and our expectations relating to returns on invested pension plan assets and expected benefit payments. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as "anticipate," "believe," "committed,” "continue," "estimate," "expect," "foreseeable," "future," "intend," "maintain," "may," "plan," "potential," "project," "should," "targeted," "will," and "would," or similar words or terminology. They may use the positive, negative or another variation of those and similar words. These forward-looking statements are based on our current expectations and assumptions and are not guarantees of future events or performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to: ● the effect of general economic conditions, including employment rates, interest rate levels, housing starts, general availability of financing for home mortgages and the relative strength of the U.S. dollar; ● the effect of COVID-19 and other viral or disease outbreaks and their potential effects on our business, results of operations, cash flows, financial condition and future prospects; ● market demand for the company's products, including market demand for our timberland properties with higher and better uses, which is related to, among other factors, the strength of the various U.S. business segments and U.S. and international economic conditions; ● changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Japanese yen, the Chinese yuan, and the Canadian dollar, and the relative value of the euro to the yen; ● restrictions on international trade and tariffs imposed on imports or exports; ● the availability and cost of shipping and transportation; ● economic activity in Asia, especially Japan and China; ● performance of our manufacturing operations, including maintenance and capital requirements; ● potential disruptions in our manufacturing operations; ● the level of competition from domestic and foreign producers; ● the successful execution of our internal plans and strategic initiatives, including restructuring and cost reduction initiatives; ● the successful and timely execution and integration of our strategic acquisitions, including our ability to realize expected benefits and synergies, and the successful and timely execution of our strategic divestitures, each of which is subject to a number of risks and conditions beyond our control including, but not limited to, timing and required regulatory approvals or the occurrence of any event, change or other circumstances that could give rise to a termination of any acquisition or divestiture transaction under the terms of the governing transaction agreements; ● raw material availability and prices; ● the effect of weather; ● changes in global or regional climate conditions and governmental response to such changes; ● the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters; ● energy prices; ● transportation and labor availability and costs; ● federal tax policies; ● the effect of forestry, land use, environmental and other governmental regulations; ● legal proceedings; ● performance of pension fund investments and related derivatives; ● the effect of timing of employee retirements and changes in the market price of our common stock on charges for share-based compensation; ● the accuracy of our estimates of costs and expenses related to contingent liabilities and the accuracy of our estimates of charges related to casualty losses; ● changes in accounting principles; and ● other risks and uncertainties described in this report under Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and in our 2020 Annual Report on Form 10-K, as well as those set forth from time to time in our other public statements, reports, registration statements, prospectuses, information statements and other filings with the SEC. It is not possible to predict or identify all risks and uncertainties that might affect the accuracy of our forward-looking statements and, consequently, our descriptions of such risks and uncertainties should not be considered exhaustive. There is no guarantee that any of the events anticipated by these forward-looking statements will occur, and if any of the events do occur, there is no guarantee what effect they will have on the company's business, results of operations, cash flows, financial condition and future prospects. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. 14 RESULTS OF OPERATIONS In reviewing our results of operations, it is important to understand these terms: ● Sales realizations for Timberlands and Wood Products refer to net selling prices. This includes selling price plus freight, minus normal sales deductions. Real Estate transactions are presented at the contract sales price before commissions and closing costs, net of any credits. ● Net contribution (charge) to earnings does not include interest expense or income taxes. ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS Overview In March 2020, COVID-19 was officially declared a global pandemic by the World Health Organization, and a national emergency was declared by the United States. The immediate economic effects of the pandemic were severe, as U.S. gross domestic product (GDP) declined 31 percent in the second quarter of 2020 and the national unemployment rate soared to a record-high of nearly 15 percent in April 2020 driven by the restrictions imposed in response to the pandemic. Since that time the unemployment rate has fallen steadily, and U.S. GDP has rebounded significantly as states have continued to reopen their economies and loosen restrictions. Although market conditions across our businesses deteriorated rapidly in late first quarter and early second quarter 2020, they quickly rebounded as demand for housing and wood products proved resilient. Growth in repair and remodel demand and new residential construction activity resulted in demand for wood products that significantly outpaced available supply, and benchmark pricing for our commodity wood products reached record levels. After declining briefly in the final months of 2020, benchmark prices for our commodity wood products rose sharply through May 2021 beyond the record levels established in the prior year. At the end of the second quarter, lumber prices had begun a substantial correction as demand and supply came into balance. Looking ahead to the remainder of 2021, our market conditions and the strength of the broader U.S. economy will continue to be influenced by the trajectory of U.S. housing activity, the ongoing pace of reopening economic activities due to COVID-related restrictions, inflation trends, interest rates, and the nature and extent of future government stimulus including the proposed infrastructure bill. We have taken proactive steps to safeguard the health of our employees and preserve business continuity from the beginning of the pandemic. These actions included detailed cleaning and disinfecting procedures, strict processes around masking, social distancing and personal hygiene, clear communication with our employees, contractors, vendors and visitors about our safety protocols, comprehensive guidance for response to any COVID-19 diagnoses or exposures in our operations, suspension of all air travel and non-essential meetings, and a directive that employees work from home if feasible. In light of the recent adjustments to federal, state and local health and safety restrictions, we have begun a phased-in approach to return those employees who have been working from home back to their work locations. We remain vigilant about employee safety and will continue to monitor developments, including but not limited to the spread of disease variants and their impact on local health systems. Business Outlook The demand for sawlogs within our Timberlands segment is directly affected by domestic production of wood-based building products. The strength of the U.S. housing market, especially new residential construction, strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Seasonal weather patterns impact the level of construction activity in the U.S., which in turn affects demand for our logs and wood products. In second quarter 2021, wet weather constrained harvest operations for producers in the U.S. South. Our Timberlands segment, specifically the Western region, is also affected by export demand and trade policy. Japanese housing starts are a key driver of export log demand in Japan. The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and oriented strand board (OSB) as well as the demand for biofuels, such as pellets made from pulpwood. The Timberlands segment is also influenced by the availability of harvestable timber. In general, Western log markets are highly tensioned while Southern log markets have more available supply. However, additional mill capacity is contributing to some tightening in the South. On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for second quarter 2021 averaged 1.57 million units, which was 2 percent below first quarter 2021. Single family starts averaged 1.1 million units, a 4 percent decline from first quarter 2021 but a 43 percent improvement over second quarter 2020. Multi-family starts averaged 464 thousand units in second quarter 2021, which was 5 percent higher than first quarter 2021 and 49 percent higher than second quarter 2020. Sales of newly built, single family homes averaged a seasonally adjusted annual rate of 728 thousand units for second quarter 2021, a 19 percent decrease from the prior quarter average of 896 thousand units and a 4 percent increase from the second quarter 2020 average of 703 thousand units . Repair and remodeling expenditures declined by 10 percent from March to June 2021 according to the Census Bureau Advance Retail Spending report. A decrease in do-it-yourself activity contributed to lower sales at home improvement centers offset in part by a transition to larger projects undertaken by professional contractors. In U.S. wood product markets, demand for commodity products was strong during the first half of the second quarter, and benchmark pricing for lumber and OSB reached record highs as demand continued to outpace production capacity. As repair and remodeling demand fell, lumber prices declined. OSB, which is much more focused on new residential construction activity than repair and remodeling, had not seen similar price declines as lumber at the end of the quarter. The Random Lengths Framing Lumber Composite price averaged $1,260/MBF and the OSB Composite averaged $1,373/MSF in second quarter 2021. At the end of the second quarter, prices were $770/MBF for the Lumber Composite and $1,501/MSF for the OSB composite. Through the end of July, lumber prices continued to fall, and OSB prices began to decline in the second half of July. In Western log markets, Douglas fir sawlog prices decreased 3 percent in second quarter 2021 compared with first quarter 2021 as reported by RISI Log Lines, in part a response to the recent decline in lumber prices. In the South, sawlog prices increased by 3 percent from first quarter 2021 as reported by TimberMart-South. 15 E xchange rates, available supply from other countries and trade policy affect our export businesses. During second quarter 2021, continued disruptions in shipping, diversion of European log and lumber supply to other markets, and curtailments on Australian log imports to China generally had a positive impact on China’s demand for logs imported from the U.S . In Japan, total housing starts increased 2.5 percent year to date through May compared to the same period in 2020, while the key Post and Beam segment saw a 6 percent increase. Decreased lumber imports from Europe to Japan were favorable to our Japanese log export business . CONSOLIDATED RESULTS How We Did Second Quarter 2021 and Year-to-Date 2021 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Net sales $ 3,144 $ 1,631 $ 1,513 $ 5,650 $ 3,359 $ 2,291 Costs of sales 1,583 1,283 300 3,013 2,665 348 Operating income 1,429 243 1,186 2,385 483 1,902 Net earnings 1,028 72 956 1,709 222 1,487 Earnings per share, basic and diluted 1.37 0.10 1.27 2.28 0.30 1.98 Comparing Second Quarter 2021 with Second Quarter 2020 Net sales Net sales increased $1,513 million – 93 percent – primarily due to a $1,422 million i ncrease in Wood Products sales to unaffiliated customers attributable to increased sales realizations across all product lines. Costs of sales Costs of sales increased $300 million – 23 percent – primarily due to increased sales volumes within our Wood Products segment and increased freight costs and third-party log purchases within our Timberlands segment. Operating income Operating income increased $1,186 million – 488 percent – primarily due to a $1,213 million increase in consolidated gross margin (see discussion of components above). Net earnings Net earnings increased $956 million – 1,328 percent – primarily due to the $1,186 million increase in operating income discussed above. This increase was partially offset by a $264 million increase in income tax expense (refer to Income Taxes ). Comparing Year-to-Date 2021 with Year-to-Date 2020 Net sales Net sales increased $2,291 million – 68 percent – primarily due to a $2,208 million i ncrease in Wood Products sales to unaffiliated customers attributable to increased sales realizations across all product lines. Costs of sales Costs of sales increased $348 million – 13 percent – primarily due to increased sales volumes within our Wood Products segment and increased freight costs and third-party log purchases within our Timberlands segment. These increases were partially offset by decreased real estate acres sold within our Real Estate & ENR segment. Operating income Operating income increased $1,902 million – 394 percent – primarily due to a $1,943 million increase in consolidated gross margin (see discussion of components above). Net earnings Net earnings increased $1,487 million – 670 percent – primarily due to the $1,902 million increase in operating income discussed above. This increase was partially offset by a $456 million increase in income tax expense (refer to Income Taxes ). 16 TIMBERLANDS How We Did Second Quarter 2021 and Year-to-Date 2021 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Net sales to unaffiliated customers: Delivered logs: West $ 222 $ 179 $ 43 $ 423 $ 356 $ 67 South 145 145 — 276 295 (19 ) North (1) 9 7 2 25 24 1 Subtotal delivered logs sales 376 331 45 724 675 49 Stumpage and pay-as-cut timber 7 5 2 13 10 3 Recreational and other lease revenue 16 16 — 32 31 1 Other (2) 6 7 (1 ) 15 24 (9 ) Subtotal net sales to unaffiliated customers 405 359 46 784 740 44 Intersegment sales 136 121 15 270 243 27 Total sales $ 541 $ 480 $ 61 $ 1,054 $ 983 $ 71 Costs of sales $ 407 $ 383 $ 24 $ 790 $ 758 $ 32 Operating income and Net contribution to earnings $ 113 $ 75 $ 38 $ 221 $ 180 $ 41 (1) In March 2020, we sold our Montana timberlands. (2) Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips. Comparing Second Quarter 2021 with Second Quarter 2020 Net sales to unaffiliated customers Net sales to unaffiliated customers increased $46 million – 13 percent – primarily due to a $43 million increase in Western log sales attributable to a 31 percent increase in sales realizations, partially offset by a 6 percent decrease in sales volumes. Intersegment sales Intersegment sales increased $15 million – 12 percent – primarily due to a 15 percent increase in sales realizations, partially offset by a 2 percent decrease in sales volumes. Costs of sales Costs of sales increased $24 million – 6 percent – primarily due to increased freight costs and third-party log purchases, partially offset by decreased fee harvest volumes. Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $38 million – 51 percent – primarily due to the change in the components of gross margin, as discussed above. Comparing Year-to-Date 2021 with Year-to-Date 2020 Net sales to unaffiliated customers Net sales to unaffiliated customers increased $44 million – 6 percent – primarily due to a $67 million increase in Western log sales attributable to a 28 percent increase in sales realizations, partially offset by a 7 percent decrease in sales volumes. The increase was partially offset by a $19 million decrease in Southern log sales attributable to a 9 percent decrease in sales volumes. Intersegment sales Intersegment sales increased $27 million – 11 percent – primarily due to a 15 percent increase in sales realizations, partially offset by a 3 percent decrease in sales volumes. Costs of sales Costs of sales increased $32 million – 4 percent – primarily due to increases in freight costs and third-party log purchases, partially offset by decreased fee harvest volumes. 17 Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $41 million – 23 percent – primarily due to the change in the components of gross margin, as discussed above. Third-Party Log Sales Volumes and Fee Harvest Volumes QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN THOUSANDS JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Third-party log sales – tons: West (1) 1,608 1,714 (106 ) 3,147 3,398 (251 ) South 4,150 4,307 (157 ) 7,932 8,672 (740 ) North (2) 115 113 2 376 397 (21 ) Total 5,873 6,134 (261 ) 11,455 12,467 (1,012 ) Fee harvest volumes – tons: West (1) 2,099 2,236 (137 ) 4,200 4,546 (346 ) South 5,856 5,914 (58 ) 11,232 12,044 (812 ) North (2) 199 194 5 536 580 (44 ) Total 8,154 8,344 (190 ) 15,968 17,170 (1,202 ) (1) Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes. (2) In March 2020, we sold our Montana timberlands. REAL ESTATE, ENERGY AND NATURAL RESOURCES How We Did Second Quarter 2021 and Year-to-Date 2021 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Net sales: Real estate $ 83 $ 48 $ 35 $ 167 $ 143 $ 24 Energy and natural resources 27 17 10 49 34 15 Total $ 110 $ 65 $ 45 $ 216 $ 177 $ 39 Costs of sales $ 41 $ 40 $ 1 $ 75 $ 110 $ (35 ) Operating income and Net contribution to earnings $ 63 $ 19 $ 44 $ 129 $ 55 $ 74 The volume of real estate sales is a function of many factors, including the general state of the economy, demand in local real estate markets, the ability of buyers to obtain financing, the number of competing properties listed for sale, the seasonal nature of sales (particularly in the northern states), the plans of adjacent landowners, our expectation of future price appreciation, the timing of harvesting activities, and the availability of government and not-for-profit funding. In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold. Comparing Second Quarter 2021 with Second Quarter 2020 Net sales Net sales increased $45 million – 69 percent – primarily due to an increase in the average price per real estate acre sold. Costs of sales Costs of sales increased $1 million – 3 percent – primarily due to increased basis per real estate acre sold, partially offset by decreased real estate acres sold. Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $44 million – 232 percent – primarily due to the change in the components of gross margin, as discussed above. 18 Comparing Year-to-Date 2021 with Year-to-Date 2020 Net sales Net sales increased $39 million – 22 percent – primarily due to an increase in the average price per real estate acre sold. Costs of sales Costs of sales decreased $35 million – 32 percent – primarily due to decreased real estate acres sold. Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $74 million – 135 percent – primarily due to the change in the components of gross margin, as discussed above. REAL ESTATE SALES STATISTICS QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Acres sold 18,415 31,337 (12,922 ) 37,870 76,310 (38,440 ) Average price per acre $ 3,227 $ 1,501 $ 1,726 $ 3,523 $ 1,790 $ 1,733 WOOD PRODUCTS How We Did Second Quarter 2021 and Year-to-Date 2021 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Net sales: Structural lumber $ 1,349 $ 538 $ 811 $ 2,339 $ 1,046 $ 1,293 Oriented strand board 605 179 426 1,043 369 674 Engineered solid section 166 111 55 308 238 70 Engineered I-joists 104 70 34 187 148 39 Softwood plywood 69 34 35 125 73 52 Medium density fiberboard 43 33 10 91 77 14 Complementary building products 213 169 44 384 322 62 Other products produced (1) 80 73 7 173 169 4 Total $ 2,629 $ 1,207 $ 1,422 $ 4,650 $ 2,442 $ 2,208 Costs of sales $ 1,229 $ 997 $ 232 $ 2,353 $ 2,037 $ 316 Operating income and Net contribution to earnings $ 1,338 $ 159 $ 1,179 $ 2,178 $ 293 $ 1,885 (1) Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations. Comparing Second Quarter 2021 with Second Quarter 2020 Net sales Net sales increased $1,422 million – 118 percent – due to: ● an $811 million increase in structural lumber sales attributable to a 146 percent increase in sales realizations, as well as a 2 percent increase in sales volumes; ● a $426 million increase in oriented strand board sales attributable to a 280 percent increase in sales realizations, partially offset by an 11 percent decrease in sales volumes primarily due to planned maintenance outages; ● a $55 million increase in engineered solid section sales attributable to a 27 percent increase in sales volumes, as well as an 18 percent increase in sales realizations; ● a $44 million increase in complementary building product sales attributable to increased sales volumes and sales realizations; ● a $35 million increase in softwood plywood sales attributable to a 153 percent increase in sales realizations, partially offset by a 19 percent decrease in sales volumes primarily due to the ongoing effects of weather-related disruptions that occurred in first quarter 2021; ● a $34 million increase in engineered I-joists sales attributable to a 26 percent increase in sales volumes, as well as a 20 percent increase in sales realizations; 19 ● a $10 million increase in medium density fiberboard sales attributable to a 2 5 percent increase in sales volumes, as well as a 5 percent increase in sales realizations and ● a $7 million increase in other products produced sales attributable to increased sales volumes and sales realizations. Costs of sales Costs of sales increased $232 million – 23 percent – primarily due to an increase in sales volumes across most product lines. Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $1,179 million – 742 percent – primarily due to the change in the components of gross margin, as discussed above. Comparing Year-to-Date 2021 with Year-to-Date 2020 Net sales Net sales increased $2,208 million – 90 percent – primarily due to: ● a $1,293 million increase in structural lumber sales attributable to a 128 percent increase in sales realizations, partially offset by a 2 percent decrease in sales volumes; ● a $674 million increase in oriented strand board sales attributable to a 211 percent increase in sales realizations, partially offset by a 9 percent decrease in sales volumes primarily due to planned maintenance outages; ● a $70 million increase in engineered solid section sales attributable to a 15 percent increase in sales volumes, as well as a 12 percent increase in sales realizations; ● a $62 million increase in complementary building product sales attributable to increased sales volumes and sales realizations; ● a $52 million increase in softwood plywood sales attributable to a 108 percent increase in sales realizations, partially offset by an 18 percent decrease in sales volumes primarily due to the effects of weather-related disruptions that occurred in first quarter 2021; ● a $39 million increase in engineered I-joists sales attributable to a 14 percent increase in sales realizations, as well as a 12 percent increase in sales volumes and ● a $14 million increase in medium density fiberboard sales attributable to a 16 percent increase in sales volumes, as well as a 2 percent increase in sales realizations. Costs of sales Costs of sales increased $316 million – 16 percent – primarily due to an increase in sales volumes for engineered wood products and complementary building products, as discussed above. Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $1,885 million – 643 percent – primarily due to the change in the components of gross margin, as discussed above. Third-Party Sales Volumes QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS (1) JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Structural lumber – board feet 1,252 1,225 27 2,397 2,447 (50 ) Oriented strand board – square feet (3/8”) 663 747 (84 ) 1,377 1,517 (140 ) Engineered solid section – cubic feet 6.6 5.2 1.4 12.8 11.1 1.7 Engineered I-joists – lineal feet 53 42 11 100 89 11 Softwood plywood – square feet (3/8”) 77 95 (18 ) 171 208 (37 ) Medium density fiberboard – square feet (3/4”) 50 40 10 107 92 15 (1) Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business. 20 PRODUCTION AND OUTSIDE PURCHASE VOLUMES Outside purchase volumes are primarily purchased for resale through our distribution business. Production volumes are produced for sale through our own sales organizations and through our distribution business. Production of oriented strand board and engineered solid section are also used to manufacture engineered I-joists. QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Structural lumber – board feet: Production 1,234 1,108 126 2,445 2,317 128 Outside purchase 49 51 (2 ) 104 110 (6 ) Total 1,283 1,159 124 2,549 2,427 122 Oriented strand board – square feet (3/8”): Production 683 742 (59 ) 1,425 1,519 (94 ) Outside purchase 71 64 7 139 151 (12 ) Total 754 806 (52 ) 1,564 1,670 (106 ) Engineered solid section – cubic feet: Production 6.2 5.3 0.9 12.2 11.4 0.8 Outside purchase 0.2 0.1 0.1 0.5 0.3 0.2 Total 6.4 5.4 1.0 12.7 11.7 1.0 Engineered I-joists – lineal feet: Production 51 38 13 95 85 10 Outside purchase 2 3 (1 ) 5 5 — Total 53 41 12 100 90 10 Softwood plywood – square feet (3/8”): Production 62 76 (14 ) 142 173 (31 ) Outside purchase 12 14 (2 ) 26 30 (4 ) Total 74 90 (16 ) 168 203 (35 ) Medium density fiberboard – square feet (3/4"): Production 52 35 17 108 91 17 Total 52 35 17 108 91 17 21 UNALLOCATED ITEMS Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and post-employment costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations. Net Charge to Earnings – Unallocated Items QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Unallocated corporate function and variable compensation expense $ (36 ) $ (23 ) $ (13 ) $ (61 ) $ (42 ) $ (19 ) Liability classified share-based compensation — (4 ) 4 (1 ) 6 (7 ) Foreign exchange gain (loss) (1 ) 3 (4 ) (3 ) (5 ) 2 Elimination of intersegment profit in inventory and LIFO (28 ) 18 (46 ) (45 ) 5 (50 ) Other (20 ) (4 ) (16 ) (33 ) (9 ) (24 ) Operating loss (85 ) (10 ) (75 ) (143 ) (45 ) (98 ) Non-operating pension and other post-employment benefit costs (1 ) (10 ) 9 (9 ) (19 ) 10 Interest income and other 2 2 — 3 3 — Net charge to earnings $ (84 ) $ (18 ) $ (66 ) $ (149 ) $ (61 ) $ (88 ) Comparing Second Quarter 2021 with Second Quarter 2020 Net charge to earnings increased $66 million – 367 percent – primarily due to: ● a $46 million increase in elimination of intersegment profit in inventory and LIFO and ● a $13 million increase in unallocated corporate function and variable compensation expense. Comparing Year-to-Date 2021 with Year-to-Date 2020 Net charge to earnings increased $88 million – 144 percent – primarily due to: ● a $50 million increase in elimination of intersegment profit in inventory and LIFO; ● a $19 million increase in unallocated corporate function and variable compensation expense; ● a $12 million legal benefit recognized in first quarter 2020 and ● a $7 million increase in liability classified share-based compensation due to an increase in our stock price for the year-to-date period ended June 30, 2021 compared to a decrease for the same period in 2020. INTEREST EXPENSE Our interest expense, net of capitalized interest, was: ● $78 million for second quarter 2021 and $157 million year-to-date 2021; ● $103 million for second quarter 2020 and $188 million year-to-date 2020. Interest expense decreased by $25 million compared to second quarter 2020 and by $31 million compared to year-to-date 2020. The decreases were primarily due to an $11 million charge related to the early extinguishment of debt recorded in second quarter 2020, with no similar activity in second quarter and year-to-date 2021, as well as a decrease in the average outstanding debt in second quarter and year-to-date 2021. Refer to Note 9: Long-Term Debt and Line of Credit for further information. INCOME TAXES Our provision for income taxes was: ● a $324 million expense for second quarter 2021 and a $513 million expense year-to-date 2021; ● a $60 million expense for second quarter 2020 and a $57 million expense year-to-date 2020. Our provision for income taxes is primarily driven by earnings generated by our TRSs. Income tax expense increased by $456 million compared to year-to-date 2020 primarily due to an increase in our TRS earnings in 2021. Refer to Note 16: Income Taxes for further information. 22 LIQUIDITY AND CAPITAL RESOURCES We are committed to maintaining an appropriate capital structure that provides flexibility and enables us to protect the interests of our shareholders and meet our obligations to our lenders, while also maintaining access to all major financial markets. As of June 30, 2021, we had over $1.7 billion in cash and cash equivalents and $1.5 billion of availability on our line of credit, which expires in January 2025. We believe we have sufficient liquidity to meet our cash requirements for the foreseeable future. CASH FROM OPERATIONS Consolidated net cash from operations was: ● $2,006 million for year-to-date 2021 and ● $477 million for year-to-date 2020. Net cash from operations increased $1,529 million, primarily due to: ● increased cash inflows from our business segments and ● decreased cash used for interest payments. These changes were partially offset by a $262 million increase in cash paid for income taxes. CASH FROM INVESTING ACTIVITIES Consolidated net cash from investing activities was: ● $(273) million for year-to-date 2021 and ● $376 million for year-to-date 2020. Net cash from investing activities decreased $649 million, primarily due to: ● a $362 million decrease in proceeds received from variable interest entities; ● a $149 million increase in cash paid for timberlands acquisitions and ● a $145 million decrease in proceeds from the sale of timberlands. Summary of Capital Spending by Business Segment YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2021 JUNE 2020 Timberlands $ 49 $ 51 Wood Products 76 83 Total $ 125 $ 134 We expect our capital expenditures for 2021 will be approximately $460 million. The amount we spend on capital expenditures could change. CASH FROM FINANCING ACTIVITIES Consolidated net cash from financing activities was: ● $(451) million for year-to-date 2021 and ● $(349) million for year-to-date 2020. Net cash from financing activities decreased $102 million, primarily due to a $369 million increase in net cash used for payments on long-term debt. This change was partially offset by: ● a $230 million decrease in net cash paid related to borrowings on our line of credit and ● a $39 million increase in cash received from exercise of stock options. Line of Credit We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of June 30, 2021 or December 31, 2020. This credit facility expires in January 2025. Refer to Note 9: Long-Term Debt and Line of Credit for further information. Long-Term Debt In May 2021, we repaid our $225 million variable-rate term loan that was scheduled to mature in July 2026. In March 2020, we issued $750 million of 4.00 percent notes due in April 2030. The net proceeds after deducting the discount, underwriting fees and issuance costs were $732 million. In May 2020, a portion of the net proceeds was used to redeem our $569 million 4.70 percent notes due in March 2021. 23 Refer to Note 9: Long-Term Debt and Line of Credit for further information. Our revolving credit agreement utilizes the London Inter-bank Offered Rate (LIBOR) as a basis for one of the interest rate options available to the company to apply to outstanding borrowings. Publication of USD LIBOR is expected to cease between January 1, 2022 and July 1, 2023, and we are closely monitoring ongoing market developments in the identification or creation of a widely accepted replacement rate. We have included provisions in our revolving credit agreement that specifically contemplate the transition from LIBOR to a replacement benchmark rate. Debt Covenants As of June 30, 2021, Weyerhaeuser Company was in compliance with its debt covenants. There have been no significant changes to the debt covenants presented in our 2020 Annual Report on Form 10-K for our existing long-term debt instruments, and we expect to remain in compliance with our debt covenants for the foreseeable future. Option Exercises We received cash proceeds from the exercise of stock options of: ● $45 million for year-to-date 2021 and ● $6 million for year-to-date 2020. Our average stock price was $35.60 and $23.24 for year-to-date 2021 and 2020, respectively. Dividend Payments We paid cash dividends on common shares of $255 million and $254 million for year-to-date 2021 and 2020, respectively. Share Repurchases We did not repurchase shares during year-to-date 2021 or 2020. There were no unsettled repurchases as of June 30, 2021 or December 31, 2020. PERFORMANCE MEASURES Adjusted EBITDA by Segment We use Adjusted EBITDA as a key performance measure to evaluate the performance of the consolidated company and our business segments. This measure should not be considered in isolation from, and is not intended to represent an alternative to, our results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). However, we believe Adjusted EBITDA provides meaningful supplemental information for investors about our operating performance, better facilitates period to period comparisons and is widely used by analysts, lenders, rating agencies and other interested parties. Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Adjusted EBITDA, as we define it, is operating income adjusted for depreciation, depletion, amortization, basis of real estate sold and special items. QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2021 JUNE 2020 2021 VS. 2020 JUNE 2021 JUNE 2020 2021 VS. 2020 Adjusted EBITDA by Segment: Timberlands $ 180 $ 140 $ 40 $ 352 $ 313 $ 39 Real Estate & ENR 91 57 34 187 158 29 Wood Products 1,386 198 1,188 2,275 382 1,893 1,657 395 1,262 2,814 853 1,961 Unallocated Items (84 ) (9 ) (75 ) (140 ) (54 ) (86 ) Adjusted EBITDA $ 1,573 $ 386 $ 1,187 $ 2,674 $ 799 $ 1,875 24 We reconcile Adjusted EBITDA to net earnings for the consolidated company and to operating income (loss) for the business segments, as those are the most directly comparable U.S. GAAP measures for each. The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2021: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 1,028 Interest expense, net of capitalized interest 78 Income taxes 324 Net contribution (charge) to earnings $ 113 $ 63 $ 1,338 $ (84 ) $ 1,430 Non-operating pension and other post-employment benefit costs — — — 1 1 Interest income and other — — — (2 ) (2 ) Operating income (loss) 113 63 1,338 (85 ) 1,429 Depreciation, depletion and amortization 67 4 48 1 120 Basis of real estate sold — 24 — — 24 Adjusted EBITDA $ 180 $ 91 $ 1,386 $ (84 ) $ 1,573 The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2020: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 72 Interest expense, net of capitalized interest (1) 103 Income taxes 60 Net contribution (charge) to earnings $ 75 $ 19 $ 159 $ (18 ) $ 235 Non-operating pension and other post-employment benefit costs — — — 10 10 Interest income and other — — — (2 ) (2 ) Operating income (loss) 75 19 159 (10 ) 243 Depreciation, depletion and amortization 65 4 47 1 117 Basis of real estate sold — 34 — — 34 Special items included in operating income (loss) (2) — — (8 ) — (8 ) Adjusted EBITDA $ 140 $ 57 $ 198 $ (9 ) $ 386 (1) Interest expense, net of capitalized interest includes a pretax special item of $11 million related to a net charge for the early extinguishment of debt. (2) Operating income (loss) includes a pretax special item consisting of an $8 million product remediation insurance recovery. 25 The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2021: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 1,709 Interest expense, net of capitalized interest 157 Income taxes 513 Net contribution (charge) to earnings $ 221 $ 129 $ 2,178 $ (149 ) $ 2,379 Non-operating pension and other post-employment benefit costs — — — 9 9 Interest income and other — — — (3 ) (3 ) Operating income (loss) 221 129 2,178 (143 ) 2,385 Depreciation, depletion and amortization 131 7 97 3 238 Basis of real estate sold — 51 — — 51 Adjusted EBITDA $ 352 $ 187 $ 2,275 $ (140 ) $ 2,674 The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2020: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 222 Interest expense, net of capitalized interest (1) 188 Income taxes 57 Net contribution (charge) to earnings $ 180 $ 55 $ 293 $ (61 ) $ 467 Non-operating pension and other post-employment benefit costs — — — 19 19 Interest income and other — — — (3 ) (3 ) Operating income (loss) 180 55 293 (45 ) 483 Depreciation, depletion and amortization 133 7 97 3 240 Basis of real estate sold — 96 — — 96 Special items included in operating income (loss) (2) — — (8 ) (12 ) (20 ) Adjusted EBITDA $ 313 $ 158 $ 382 $ (54 ) $ 799 (1) Interest expense, net of capitalized interest includes a pretax special item of $11 million related to a net charge for the early extinguishment of debt. (2) Operating income (loss) includes pretax special items consisting of a $12 million noncash legal benefit within Unallocated Items and an $8 million product remediation insurance recovery within Wood Products. Net Earnings and Net Earnings per Diluted Share Before Special Items We use net earnings before special items and net earnings per diluted share before special items as key performance measures to evaluate the performance of the consolidated company. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with U.S. GAAP. However, we believe the measures provide meaningful supplemental information for investors about our operating performance, better facilitate period to period comparisons and are widely used by analysts, lenders, rating agencies and other interested parties. Net Earnings Before Special Items QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2021 JUNE 2020 JUNE 2021 JUNE 2020 Net earnings $ 1,028 $ 72 $ 1,709 $ 222 Early extinguishment of debt charge — 11 — 11 Legal benefit — — — (12 ) Product remediation recovery — (6 ) — (6 ) Net earnings before special items $ 1,028 $ 77 $ 1,709 $ 215 26 Net Earnings per Diluted Share Before Special Items QUARTER ENDED YEAR-TO-DATE ENDED JUNE 2021 JUNE 2020 JUNE 2021 JUNE 2020 Net earnings per diluted share $ 1.37 $ 0.10 $ 2.28 $ 0.30 Early extinguishment of debt charge — 0.02 — 0.02 Legal benefit — — — (0.02 ) Product remediation recovery — (0.01 ) — (0.01 ) Net earnings per diluted share before special items $ 1.37 $ 0.11 $ 2.28 $ 0.29 CRITICAL ACCOUNTING POLICIES There have been no significant changes during year-to-date 2021 to the critical accounting policies presented in our 2020 Annual Report on Form 10-K.